March 1944

2 MONTHLY REVIEW

Hampton Roads and returned to their homes, when than normal acreage before harvest. Yet, intentions they could have been used in other yards of the areas. point to a flue cured tobacco acreage increase of 17 From two to three thousand additional workers are per cent from last year. March rainfall seems to needed at the N orfolk Navy Yard, but despite the have damaged the potato crop considerably and has efforts of fifteen recruiting crews, the number on delayed preparations for spring planting. Blue mold the Yard’s payroll continues to drop. Deliveries of has been observed in some tobacco beds, but in no merchant ships from the District’s yards in February greater extent than usually occurs. improved notably from the January level. In Feb­ The National Association of Tobacco Distributors ruary, 1944, twenty-three vessels were delivered to has gone on record favoring the establishment of a the Maritime Commission, compared with seventeen “floor” as well as a ceiling on leaf tobacco. Tobacco vessels in January. growers’ organizations are overwhelmingly in favor Low temperatures on two occasions in March are of preserving the quota system, which faces suspen­ not believed to have caused any important damage to fruit crops such as occurred last year. The change sion because of a dearth in supply. Thus it would in the farm labor Selective Service exemption status appear that there is considerable support for con­ is expected to be reflected in a smaller planted acre­ tinuation of a large measure of control in the growth age of some crops and the abandonment of larger and marketing of tobacco. Cotton Prices in the World Wars

COTTON PRICE RECEIVED BY FARMERS SUPPLY AND DISAPPEARANCE OF COTTON IN US. 1914 1915 1916 - 1917 1918 1919 1920 1921

A t the outbreak o f W orld W ar I, in August, 1914, 1915 and 1916 rose 16.2 cents a pound, or 52 per cent raw cotton at the farm was selling for 10.6 cents of the overall rise of 30.9 cents from the low point a pound and by November of that year it had fallen of 6.6 cents in November, 1914, to the high point of to 6.6 cents. In the two previous years cotton prices 37.5 cents in April, 1920. had ranged between 11 cents and 13 cents a pound, Although the carryover of cotton during the season but the disappearance of domestically produced cotton o f 1917 increased nearly a million bales, as a result in those two previous years also had been some half of a greater decline in cotton disappearance than in million bales larger than in the first of the war the supply, prices continued to rise and by March, years. In fact the cotton year of 1914-15 saw the 1918, had increased 24.4 cents a pound, a rise equal to largest disappearance of domestically produced cotton 79 per cent of the overall war and post-war rise of that was to occur for the ensuing decade. This was 30.9 cents. The success of the allied armies in break­ because the loss in exports in the wrar years more ing the Hindenburg Line in the spring of 1918 stayed than offset the gain in domestic consumption. Fur­ the cotton price rise through the summer of that thermore, it was fully 5 years following the termi­ year and the anticipation of a successful conclusion of nation of the first World War before material re­ the war resulted in a setback in cotton prices that covery had occurred in cotton exports. lasted through M arch, 1919. From this point until The carryover of cotton in years prior to the 1914- April, 1920, cotton prices at the farm rose 13.3 cents 15 season had generally run between 1*4 and 1% to the peak m onthly level o f 37.5 cents in April, 1920. million bales, but as o f July 31, 1915, one year after The deflation that occurred in cotton prices between war had been in progress, the carryover amounted to July, 1920, and April, 1921, brought them back to 3.9 million bales, which resulted largely because of within 2.8 cents of the lowest level prevailing in an increase in the crop that year. In the next two 1914* years the cotton carryover declined l 1/^ million bales. As has been characteristic of raw materials prices, Production and disappearance had both trended down­ the price of cotton rose and fell much more violently ward during these two years, but the fall in the carry­ in this period under review than did the prices of all over resulted from production falling more than dis­ farm products. Cotton prices, as was previously appearance. Cotton prices in the two crop years pointed out, rose 468 per cent between November 15,

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MONTHLY, 'REVIEW 3

1914, and. April, 1920, whereas all farm com m odities ever, there was; stilLan /amount of domestically pro­ rose 142 percent in the same period. The decline ip duced' cottonr ©nvhand nearly: equal to the domestic cotton prices that ensued in the depression of ,1921 consumption ot the previous: year.; Acreage allot­ carried them 75 percent below the 1920 peak level, ments for the current year are about the same as while the prices of all farm commodities fell 52 per­ those harvested last year, and there is no reason to cent in that depression. believe at this time that planted acreage will be mate­ In most of the period between World Wars I and II, rially different from last year. Given a normal grow­ cotton was in an unbalanced supply-demand posi­ ing season the American cotton carryover will not tion. Although production of cotton in the United be greatly different a year hence than at the present States by the middle of the 1920,s had recovered to time. a level that had prevailed in the four years prior to Cotton prices at the beginning of World War II 1914, disappearance o f the available supply into were approximately at the same levels as at the domestic consumption and export did not keep pace* beginning of World War I. For the first two and a and as a result the carryover, which amounted to half years of the second World War cotton prices only 1 ¥2 million bales on August 1, 1924, trended closely approximated the rising pattern that was set mainly upward to 13 million bales on August 1, 1939. in the first World Wan In the current wrar to date, The primary cause of the upward trend in the however, cotton prices have doubled, which was about domestic cotton carryover was the persistent down­ the same increase as the average of all farm prices, trend in cotton exports. In the 1926-27 crop year whereas in World War I cotton prices rose 468 per­ exports of American cotton had reached the 10 mil­ cent while the average of all farm commodities was lion bale level that prevailed in the best prewar year increasing 142 percent. During the first World War, 1911, and in the crop years 1931 through 1933 they despite the fact that the cotton carryover was in­ had held between 8 and 9 million bales annually. In creasing, the cotton supply was held in private hands, each of these years the domestic price of cotton had domestic demand was increasing rapidly and no price experienced a substantial decline, both in dollars and regulation was present to restrain the upward move. relative to foreign growths. In World War II, however, the very large carryover The advent of parity price concepts and adoption ill existence has been a persistent restraint to rising in 1934 of policy to implement such concepts, how­ cotton prices, and only through the establishment of ever, adversely affected the competitive position of supports by the Government was it possible to effect American cotton in the world markets. Cotton ex­ the rise in cotton prices that has been recorded. Domestic ports in the five years before the outbreak of World cotton production is now running about the same level War II averaged only 5,027 thousand bales compared as disappearance, and little prospect appears for any with 7,622 thousand in the five years 1929-33, and important reduction in the large carryover in the com­ ing year. with 8,514 thousand bales in the five years 1924-28. Thus despite a moderate upward trend in domestic World cotton production has been in a downward consumption of cotton between wars loss of exports trend since the war began, but despite this fact stocks resulted in the total disappearance showing a down­ of foreign grown cotton have risen substantially, and ward trend following the middle 1920’s. In this these stocks will act as a restraint on United States period between wars the total supply of cotton avail­ postwar exports. The very large growth in syn­ able for domestic consumption and export trended thetic fiber production in Axis countries is expected sharply upward. While the total world consump­ to work against the postwar use of cotton in those tion of cotton outside the United States rose in a countries, but the extent to which this factor will be constantly increasing trend, these requirements were applicable must depend in part on the availability of supplied by increased production in India, Brazil, foreign exchange to those countries. Furthermore, it China and to some extent in Russia. will likely take some time before the economies of Thus at the outbreak of World War II, the supply many of the world nations can create a sufficient of American cotton available for domestic consump­ income to cover primary necessities and be in a posi­ tion and export of nearly 25 million bales was close tion to. trade for large volumes of textiles despite the to two full years of then existing requirements do­ very great need that will be present. Lend-lease mestic and foreign. Foreign markets for American policy on the other hand could eliminate the burden­ cotton quickly dried up because of a lack of ship­ some domestic carryover in a reasonably short time. ping facilities, but domestic mills stepped up their Thus the outlook for cotton prices in the immediate rate of cotton usage which partly compensated for years ahead would seem to be largely a function of the export loss. national policy. If that policy be to include cotton Domestic production of cotton has not been pushed under a liberal lend-lease program the price might by the War Food Administration as a needed crop very well be maintained or rise notably if rising of war. Cotton acreage allotments in the war years tendencies prevail in commodities generally. If the have consistently run well above the level that grow­ policy be one of support through loans, American ers have been willing to plant. Domestic production, cotton will in all probability continue to be priced therefore, in the current war years has not equaled out of the world market. Such a price relationship the disappearance and the carryover has been reduced would reduce the market pf the American cotton about 2 million bales. ; producer largely to the United States. Without At the beginning of the 1943-44 crop year, how­ farther controls on domestic cotton production it is

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4 MONTHLY REVIEW

probable that a crop of anywhere between 12 and of production. The purpose of this brief discussion 15 million bales would be produced yearly. Domestic is to indicate the position confronting the cotton consumption in normal years never exceeded 8 mil­ growing industry in the immediate years following lion bales. Therefore a price support through loans the war. The economic and sociological implica­ would build up loan stocks more or less continuously, tions, at home and abroad, of the adoption of any one which would necessitate other policies to deal with of numerous possible policies are reserved for more the surplus, or sooner or later require further control intensive study. The Fourth War Loan in the Fifth Federal Reserve District Investors in the Fifth Federal Reserve District, other Savings Bonds, the increasing trend in these sales takes than commercial banks, purchased $880,996,000 of gov­ more current spending money out of the pockets of those ernment securities offered in the Fourth W ar Loan, an most likely to cause inflation than other types of securities. amount 9 per cent below the $972,374,000 purchased Substantial decreases occurred in Fourth W ar Loan in the Third W ar Loan. Commercial bank purchases sales of 2j4 per cent and 2 per cent bonds from com­ for their own account, which in the Fourth W ar Loan parable issues offered in the Third W ar Loan. Decreases were limited to 10 per cent of their savings deposits or a were particularly marked in sales to individuals. With maximum of $200,000, totaled $53,069,000, but these commercial banks not permitted to own the 2j4’s and 2 ^ ’s were not included in the quotas. of the Fourth War Loan it appeared improbable to buyers Fourth W ar Loan sales to non-bank investors in the that these bonds would offer an opportunity for a quick Fifth District accounted for 5.27 per cent of the United turnover profit. Thus the possibility of “free riding” States total. This District accounted for 5.13 per cent the market in these issues was poorer in the Fourth W ar in the Third W ar L oan; 4.43 per cent in the Second; and Loan than in the Third. N o doubt this factor played an 4.34 per cent in the First. This progressive increase in important part in decreasing the amount of these securi­ the District’s proportion of non-bank sales is somewhat ties sold. The inability of commercial banks to own the surprising, particularly in the Third and Fourth Loans. 2 % ’s and 2 ^ ’s may also have found reflection in the It is a matter of record that the Fifth District’s income tripling of sales of Certificates of Indebtedness to indi­ had increased considerably faster than the United States viduals. The extent to which these individual purchases total income in the war years through 1942, but this ten­ were made for quick resale should be evident in ’the next dency appears to have been checked around the middle of several weeks by their appearance in bank portfolios. 1943. Thus the rising trend in the District’s percentage The Fifth District accounted for 4.34 per cent of all of the United States purchases has been made in spite of securities sold in the First W ar Loan. This percentage the decline in the District’s proportion of the total national has risen in each succeeding W ar Loan to a level of 5.27 income. per cent in the Fourth. Contributing notably to improve­ Strong emphasis was placed on sales to individuals, ment were, in the main, rising proportions of the nation’s partnerships and personal trust accounts in the Fourth total sales of Certificates of Indebtedness, Series E W ar W ar Loan. It is interesting to note that sales to these Savings Bonds, medium-term bonds, and Tax and Sav­ investors accounted for 41.3 per cent of the District’s ings Notes, though no one of these issues showed suc­ total sales to non-bank investors, compared with 36.5 per cessively higher percentages through the four Drives. cent in the Third W ar Loan, and with 35.5 per cent in The District’s proportion of all Series F and G Savings the Second War Loan. Out of four major investor Bonds sold in the United States has been progressively classes, individuals, etc., recorded the only increase in downward since the First W ar Loan, despite the pro­ amount sold in the Fourth W ar Loan compared with the gressive increases in the dollar sales of these bonds. The Third W ar Loan, as the accompanying table shows: District’s proportion of 2J^% bonds sold was lower in WAR LOAN SALES OF SECURITIES BY the Fourth W ar Loan than in any of the three previous TYPES OF NON-BANK INVESTORS Loans. Fifth Federal Reserve District WAR LOAN SALES OF GOVERNMENT SECURITIES Thousand Dollars Per Cent of United States TO NON-BANK INVESTORS Fifth Federal Reserve District Second Third Fourth Second Third Fourth First Second Third Fourth Individuals, etc. 212,367 354,966 363,701 6.45 6.60 6.85 Savings banks & Thousand Dollars Ins. companies. . . . 101,999 143,964 100,172 2,83 3.48 2.94 Dealers & Brokers 41,087 24,298 18,386 7.55 2.72 4.02 % % Certificates ...... 59,456 150,136 197,799 256,491 Others ...... 241,301 449,151 398,737 4.00 5.26 5.26 Bonds 1%% ; 2% ; 2%%. .. . 40,154 112,929 289,754 181,062 Total . 596,754 972,379 880,996 4.43 5.13 5.27 Bonds 2y2% ...... 70,153 108,908 133,289 45,243 Tax & Savings Notes...... 60,676 83,253 137,526 122,523 Savings Bonds, Series E. .. 46,051 96,026 160,080 213,313 Notable shifts in demand for the various types of se­ Savings Bonds, Series F & G. . . . 20.174 44.812 53,931 62,364 curities were in evidence in the Fourth W ar Loan as . 296,664 596,754* 972,379 880,996 compared with the Third War Loan. Increases of ap­ Per Cent of United States Total proximately one-third were shown in sales of Certificates %% Certificates ...... 3.57 4.84 4.80 5.09 Bonds 1% % ; 2% ; 2% % ... 4.00 4.01 5.51 5.44 of Indebtedness and Series E War Savings Bonds. Series Bonds 2%i% ...... 2.47 2.89 3.53 2.36 F and G Sayings Bonds sales increased 16 per cent, but Tax & Savings Notes...... , , 4.57 5.04 5.54 5.49 Savings Bonds, Series E. ... 6.34 6.52 6.48 6.69 sales of these bonds to individuals, etc., were somewhat Savings Bonds, Series F & G. 6.94 6.72 6.49 6.09 smaller. All other issues offered in the Fourth W ar Loan Total ...... 4.34 4.43 5.13 5.27 were sold in amounts from 11 to 66 per cent lower than ♦Includes unallocated amount of $690,000. comparable issues in the Third W ar Loan. Owing to the The Fifth District sales record in the Four W ar Loans large number of buyers covered by the sales of Series E (including Series E Bonds in the First), together with

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